The Securities and Exchange Commission is looking into a whole host of potentially questionable practices on the part of private equity firms, seeking to ensure that investors are getting a fair shake.

The regulator launched its probe two years ago, after the passage of the Dodd-Frank financial regulation law gave it the power to do so. The SEC's investigation ranges from how firms pay out profits to investors, how expenses are allocated, dealings with third-party firms and internal controls.

In particular, the SEC is keen to learn whether p.e. firms are living up to their agreements with investors in terms of waterfall distributions when portfolio holdings are sold. While those agreements differ between firms and funds, the regulator believes that some firms may be playing fast-and-loose with the rules they set down, which often stipulate that investors be repaid the initial investment and a hurdle level of profits before the private equity manager gets a dime. While some partnership agreements do not impose such requirements, the SEC is concerned that poor internal controls on payment tracking could allow firms to take money earlier or take more than they are entitled to, Bloomberg News reports.

The SEC is also looking at how firms allocated "broken deal" expenses. The regulator is seeking to ensure that those fees are fairly apportioned among all investors, and that large investors with separate accounts are not being given a break.

Speaking of getting a break, the probe also seeks to learn whether private equity firms are trading business to lawyers and bankers in exchange for fee discounts, which would benefit the manager at the expense of investors.

The SEC probe is the second regulatory investigation of the industry revealed this month. New York State Attorney General Eric Schneiderman is looking into whether private equity firms are improperly using two controversial methods to reduce, delay or avoid paying some taxes. New York has issued subpoenas to 13 private equity firms, including Apollo Global Management, Bain Capital, Kohlberg Kravis Roberts and TPG Capital.

According to Bloomberg, the SEC has sought information about broken deal fees from some firms.

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